Illicit financial inflows and low tax revenue bedevil Africa’s development
11 July 2016
Posted by: Author: Amanda Visser
Author: Amanda Visser (BDlive)
The biggest threats to Africa’s development are still illicit financial outflows and critically low tax revenue, and countries on the continent cannot continue to finance spending through debt and money creation, the first ever Africa Tax Outlook report warns.
The report, published by the Africa Tax Administration Forum, assesses and compares indicators in tax bases, tax structure, revenue performance and tax administration. The research covers 15 participating countries over a five-year period from 2010-2014.
The countries’ average total tax revenue as a percentage of GDP was 17.6% — significantly below Latin America (21.3%) and 25.7% for richer members of the Organisation for Economic Co-operation and Development (OECD).
Two African countries stack up well over the research period: SA at 25%, and Seychelles, with has a population of just 90,000, at almost 26%.
The differences in these ratios might be related to tax policy decisions, the effectiveness of the tax authority and the degree of fiscal corruption.
Total tax revenue as a percentage of GDP indicates the share of a country’s output that is collected by the government through taxes. The tax burden is measured by taking the total tax revenues received as a percentage of GDP.
Keith Engel, CEO of the South African Institute for Tax Professionals (SAIT), agrees that low collections in the region are a widespread problem.
However, he is concerned that the OECD and nonprofit organisations are inadvertently pushing African revenue authorities towards Eurocentric and quick-fix solutions that are leading to "over taxation" of the compliant few.
"Much of the tax gap is caused by the inability to control outright evasion stemming from informal businesses, outright bribery, dual bookkeeping and weak revenue operational systems.
"Oddly enough, even many so-called first world countries have not fully overcome these shortcomings," says Engel.
The research shows that the largest single source of tax revenue in 12 of the 15 countries is consumption taxes (value added tax and excise duties), at 43%.
However, in SA individuals contribute 36% in personal income tax to the fiscus — compared with 9% in Burundi, 8% in Cameroon, 23% in Kenya and 19% in Uganda. The average contribution from individuals in the 15 countries is 22%.
The contribution of corporate income tax in the 15 countries averaged 16%, customs taxes 18% and levies from lotteries, betting, transport fares and special goods and services averaged 10%.
A key finding of the research is that Africa is in critical need of more quality tax statistics. Countries have to develop processes, skills and systems to collect and extract data on critical indicators.
The report emphasises the importance of data collection. The lack of sufficient and credible data affects the ability to do risk profiling and risk identification, it says. "Statistics are a condition for better policy formulation and fiscal planning. Indeed, without them there can be neither efficient policy nor reform."
Data-collection challenges facing the 15 countries include the lack of computerised, automated processes and systems, unintegrated systems, lengthy bureaucratic processes, and unreliable data on critical indicators.
The report cites the Global Financial Index, which says illicit flows from sub-Saharan Africa averaged 5.5% of GDP a year between 2003 and 2012, compared with 3.9% in all developing countries.
"It is urgent that African countries adapt the OECD’s action plans against tax base erosion and profit shifting to their own particular needs," it says.
This article first appeared on bdlive.co.za.